This paper familiarizes the reader with contingent convertibles and their role in the current financial landscape. A contingent convertible is a security behaving like a bond in normal times, but that converts into equity or is written down in times of turbulence. The paper presents a few existing pricing approaches and introduces an extension to one of these, the equity derivatives approach, by letting the underlying asset follow a jump-diffusion process instead of a standard Geometrical Brownian Motion. The extension requires sophisticated computational techniques in order for the pricing to stay within reasonable time frames. Since market data is sparse and incomplete in this area, the validation of the model is not performed quantitatively, but instead supported by qualitative arguments.

Contingent convertible bonds are hybrid capital instruments, contingent on some form of indicator of financial distress of the issuing bank. Following the financial crisis, these instruments are proposed as a solution to the moral hazard issue of banks too big to fail. With the increased capital requirements of the Basel III directive, contingent capital enables banks to increase their capitalization without issuing expensive equity. Also, in times of historically low interest rates, these instruments might be interesting for investors in search of higher yields, as well as long term investors wanting to implement countercyclical investment strategies. However, due to the high complexity of these instruments, valuation has proven diffcult. The purpose of this thesis is to value instruments contingent on the bank's common equity tier 1 to risk-weighted assets ratio. We build our model upon the work of Glasserman & Nouri (2012), and extend it to include contingency on risk-weighted assets, instant non-continuous conversion to equity, and a combination of fixed imposed loss and fixed conversion price as terms of conversion. We use a capital structure model in continuous time to define asset dynamics, asset claims and the event of conversion and liquidation of the bank. Thereafter we use two important results from Glasserman & Nouri (2012) to value the discounted cash flows to holders of debt and contingent debt. From this, we arrive at closed form solutions for the coupon rates of these securities. / Contingent convertible bonds (villkoradeobligationer) är hybrida kapitalinstrument som beror på någon form av indikator på finansiell instabilitet i den emitterande banken. Efter finanskrisen har dessa finansiella produkter föreslagits som en lösning på dilemmat som uppstår när banker är för stora för att låtas gå omkull. Villkorade obligationer är en väg för banker att ta in kapital och uppfylla de ökade kapitalkrav som ställs av direktiven i Basel III utan att emittera kostsamt aktiekapital. I dessa tider av historiskt låga räntesatser är den relativt höga avkastning, tillsammans med de kontracykliska effekter produkterna ger dessutom intressanta för många investerare. Att värdera dessa produkter har dock visat sig svårt då de är mycket komplexa. Syftet med denna uppsats är att värdera villkorade obligationer som beror på relationen mellan bankens kärnprimärkapital och riskviktade tillgångar. Vi använder omvandling till aktiekapital som förlustabsorberingsmekanism och använder en kombination av fixerade konverteringspris och fixerade ålagda förluster som villkor för konversion. Vi använder en kapitalstrukturell modell i kontinuerlig tid för att definiera tillgångarnas rörelser, fordringar på tillgångarna och händelsen av konversion av kontraktet eller likvideringen av banken. Därefter använder vi två viktiga resultat från Glasserman & Nouri (2012) för att värdera de diskonterade kassaflöden till ägaren av obligationer och villkorade obligationer. Från detta hittar vi analytiska lösningar för storleken av kupongräntorna på obligationerna, villkorade som normala.

A convertible bond (CB) is a financial derivative, a so called hybrid security. It is an issued contract from a company or a government, which is paid for up-front. The contract yields a known amount at the specified maturity date, unless the holder chooses to convert it into an amount of the underlying asset. This kind of financial products can have complex features affecting the contract price and the optimal exercising situation. The partial differential equation (PDE) approach used for pricing financial derivatives makes it possible to describe convertible bonds with a physical model, a reversed diffusion described by a parabolic PDE. One can sometimes find both analytical and numerical solutions for this type of PDEs and interpret the solutions from a financial point of view, as they suggest predictable behaviour of the contract price.

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The conflict that may arise among holders of competing claims on firms' assets is being studied under the heading of "agency theory." The primary purposes of the research done in this study were to: (1) economically model the individual investor's consumption-investment decision as it is modified by the agency problem, and (2) to econometrically model the firm's decision to issue convertible versus nonconvertible bonds using explanatory variables which measure the extent of the agency problem. Individual investors are assumed to maximize expected utility of consumption by choosing consumption and investment amounts over a single period. A mathematical model of the investor's consumption-investment decision was derived in an environment characterized by agency problems between stockholders and bondholders. It was demonstrated that if the capital markets exhibit conditions known as spanning and competitivity, then the only investors affected by the agency problem are those holding the affected securities prior to the act of expropriation. It was also shown that the agency problem does not vanish in general, even if investors attempt to avoid the expropriation by holding balanced portions of all outstanding claims on a firm's assets. Implications of the theoretical development were then tested by econometrically modelling the firm's choice of convertible versus nonconvertible debt. The explanatory variables included in the model included measures of the more popular reasons for convertible financing, such as the "debt sweetener" hypothesis and the "delayed equity" rationale discussed in most basic finance textbooks. In addition, measures of agency costs were included, since one possible solution to the agency problem is the issuance of convertible bonds. The empirical results showed that the model accounted for a significant portion of the discrimination between convertible and straight debt, and that the variables designed to measure agency costs were marginally significant. / Ph. D.

Les recherches menées dans cette thèse se sont intéressées à l'étude des obligations convertibles (OC) sous différents angles : le premier essai analyse les motivations des dirigeants à émettre des OC. Nous avons proposé un questionnaire qui a été envoyé à des entreprises françaises et nous avons conclu que les émissions d'OC ont principalement pour objectif de réaliser une augmentation de capital différée, émettre un signal, payer un coupon moins élevé, éviter la dilution et diversifier les sources de financement. Ensuite, à travers une ACP, nous avons identifié trois groupes d'émetteurs: les entreprises motivées par les avantages que peut procurer une émission d'OC par rapport à une augmentation de capital ; les entreprises qui souhaitent s'endetter à moindre coût ; et les entreprises intéressées par la souplesse des OC pour effectuer un financement séquentiel. Dès lors que la décision d'émettre des convertibles est prise, le manager doit décider du design de son obligation. Dans le deuxième essai, nous avons cherché à identifier et analyser les facteurs qui influencent la structure de l'OC, mesurée par la proportion de fonds propres et de dette dans l'actif émis. Nous avons montré que le risque de sous-investissement, la performance opérationnelle future, le niveau de l'endettement et la concentration de l'actionnariat influencent la structure de l'OC. Dans le troisième essai, nous avons analysé l'effet du risque de défaut et de conversion sur la sensibilité de l'OC aux variations du taux d'intérêt, mesurée par sa duration. Nous avons montré que le risque de défaut et de conversion ont un effet négatif sur la duration pour la plupart des convertibles. / This thesis have focused on the study of convertible bonds (CB) from different angles: The first essay analyzes the motivations of firms to issue OC . We proposed a questionnaire that was sent to French companies and concluded that emissions of OC mainly aim to make a back-door equity increase, issue a signal, pay a lower coupon, avoid dilution and diversify financing sources. Then, through a principal component analysis, we identified three groups of issuers : companies motivated by the benefits of an OC issue compared to a capital increase; companies wishing to borrow at lower cost ; and companies interested in the flexibility of the OC to perform a sequential financing. Once the decision to issue convertible is taken, the manager have to decide the design of its bond. In the second study, we have identified and analyzed the factors that influence the structure of the OC, measured by the proportion of equity and debt. We have shown that the risk of underinvestment, future operating performance, the level of debt and the ownership concentration influence the structure of the OC. In the third essay, we analyzed the effect of default and conversion risks on the sensitivity of the OC to interest rates changes, as measured by its duration. We have shown that the risk of default and conversion have a negative effect on the duration for most convertible bonds.

Desde a adoção das normas internacionais de relatórios financeiros (IFRS) no Brasil, em 2010, a discussão sobre a classificação de instrumentos financeiros entre instrumentos de dívida ou de patrimônio tem se intensificado. Quando a Lei 11.638/07 foi emitida, alterando a Lei das Sociedades por Ações de 1976, teve o condão de introduzir o padrão contábil internacional na contabilidade brasileira. Entretanto, muitos dos instrumentos e aspectos da legislação societária brasileira não foram alterados ou reavaliados à luz desse novo padrão. De um momento para o outro, empresas se viram obrigadas a classificar como dívida, valores antes classificados com patrimônio líquido, como foram os diversos casos de ações resgatáveis. A própria classificação das ações ordinárias e preferenciais como instrumentos de patrimônio líquido foi colocada em dúvida devido à previsão do chamado dividendo mínimo obrigatório. Nesse ínterim, companhias abertas brasileiras emitiram certos instrumentos financeiros, analisaram e os classificaram como instrumentos de patrimônio líquido. Entretanto, tiveram tal classificação questionada pela CVM e foram requeridas a refazer suas demonstrações financeiras. Mesmo internacionalmente essa classificação não é, muitas vezes, óbvia. As últimas discussões no âmbito internacional relacionados com a classificação de instrumentos financeiros como de dívida ou de patrimônio se concentraram em duas abordagens: a \"abordagem restrita do patrimônio líquido\" (Narrow Equity Approach) e a \"abordagem estrita do passivo\" (Strict Obligation Approach). Este trabalho tem como objetivo avaliar a classificação dos instrumentos financeiros patrimoniais previstos na legislação societária brasileira à luz das normas internacionais de relatórios financeiros. Primeiramente entendendo e avaliando os casos de determinação da CVM de refazimento das demonstrações financeiras de companhias em virtude de classificação considerada inadequada de certos instrumentos financeiros como de patrimônio líquido. Em seguida, avaliando a natureza dos instrumentos patrimoniais previstos na legislação societária brasileira, especialmente as ações com dividendos prioritários, e o impacto dessa prioridade nas demonstrações financeiras das companhias. Com base nos resultados do estudo, concluiu-se que os casos de refazimento estavam relacionados a uma tentativa de classificar instrumentos típicos de dívida como patrimoniais, a partir da alteração de certos termos, mas sem atender a todos os requisitos da norma contábil. Adicionalmente, para as companhias com ações preferenciais com dividendos prioritários, observamos que os instrumentos atendiam a classificação de patrimônio líquido e que a prioridade no recebimento trouxe benefícios de fato para os seus detentores. / Since the adoption of the International Financial Reporting Standards in Brazil, in 2010, the discussion on the classification of financial instruments between debt or equity instruments has intensified. When the law 11,638/07 was issued, changing the Brazilian Corporate Law of 1976, had the effect of introducing international accounting standards in the Brazilian accounting environment. However, many of the instruments and aspects of Brazilian corporate legislation have not changed or reassessed in the light of this new standard. From one moment to the next, companies were required to reclassify amounts from equity to debt, as were the various cases of redeemable shares. Even the classification of ordinary and preferred shares as equity instruments was questioned due to the statutory minimum mandatory dividend. In the meantime, Brazilian listed companies have issued certain financial instruments, analyzed and classified them as equity instruments. However, they had such a classification questioned by the Brazilian Securities and Exchange Comission (CVM) and were required to restate their financial statements. Even internationally, this classification is not often obvious. The latest discussions in the international forum related to the classification of financial instruments as debt or equity focused on two approaches: the Narrow Equity Approach and the Strict Obligation Approach. This study aims to evaluate the classification of equity financial instruments as per the Brazilian corporate legislation in light of the International Financial Reporting Standards. Firstly, understanding and evaluating the cases of restatement of the financial statements of companies as determined by CVM due to misclassification of certain financial instruments as equity. Then, assessing the nature of equity instruments as per the Brazilian corporate legislation, especially the shares with priority dividends, and the impact of this priority in the financial statements of the company. Based on the results of the study, it was concluded that the restatements were related to the attempt of classifying typical debt instruments as equity, by amending certain of their terms, but not meeting all the requirements of the relevant accounting standard. Additionally, for companies with preferred shares with priority dividends, we observed that the instruments were classified as equity and that the priority has effectively brought benefits to these shareholders.

Submitted by JOSIANE SANTOS DE OLIVEIRA (josianeso) on 2018-07-31T16:29:25Z No. of bitstreams: 1 Giulliano Tozzi Coelho_.pdf: 3230618 bytes, checksum: 1bd46fd793c7c58d0750efa206629e74 (MD5) / Made available in DSpace on 2018-07-31T16:29:25Z (GMT). No. of bitstreams: 1 Giulliano Tozzi Coelho_.pdf: 3230618 bytes, checksum: 1bd46fd793c7c58d0750efa206629e74 (MD5) Previous issue date: 2018-05-03 / Nenhuma / As startups desempenham um papel relevante na produção de inovações e, por consequência, no desenvolvimento econômico. Por não possuírem todos os recursos necessários para o desenvolvimento dos seus negócios, é comum optarem por procurarem investimentos, encontrando nos investidores-anjo uma opção vantajosa. No Brasil, apesar de existirem algumas opções por realizar essa espécie de investimento, optou-se por adotar as chamadas notas conversíveis, fortemente inspiradas na prática norte-americana. Tais instrumentos podem ser definidos como um investimento realizado através da concessão de um empréstimo, o qual poderá ser pago na data de vencimento através da conversão do saldo devedor em participação societária. A conversão é obrigatória, entretanto, quando ocorre algum evento de liquidez entre a concessão do empréstimo e o vencimento. Por contarem com inúmeras cláusulas de natureza societária, tais instrumentos não podem ser classificados como o instituto típico do mútuo. Deste modo, poderia o instituto ser classificado ou como uma sociedade em comum, em face das disposições peculiares do instrumento, ou como um contrato atípico consagrado pelos usos e costumes. Para responder essa questão foi conduzida uma pesquisa qualitativa através da entrevista de doze pessoas que participaram destas operações na condição de investidor ou empreendedores. Os resultados confirmam que as notas conversíveis são o instrumento comumente utilizado nas operações de investimentoanjo, bem como que as partes entendem estar diante de uma norma jurídica exigível ao se valerem do instituto. Aliado a isto, o resultado pode ser sustentado pela percepção de outros instrumentos similares no ordenamento, a ausência da identificação do fim comum entre as partes, bem como pela teoria da atipicidade contratual. / Startups play an important role on the production of innovations and on economic development. Since startups do not have all the necessary resources for the development of their business, they often look for financial support from angel investors. In Brazil, although there are some formal options to contract this type of investment, entrepreneurs decided to adopt the so-called convertible notes, strongly inspired by US practice. Such instruments may be defined as an investment made through the granting of a loan, which may be paid on the maturity date through the conversion of the debtor balance into equity. Conversion is mandatory, however, when any liquidity event occurs between the granting of the loan and the maturity. Since the convertible notes have numerous clauses of corporate nature, such instruments can not be classified as the typical institute of loan. In this way, the institute could be classified as a partnership, or as an atypical contract consecrated by customs. This dissertation conducted interviews with twelve people who participated in these operations as investors or entrepreneurs. The results confirm that convertible notes are the instrument commonly used in angel-investment operations, as well as the fact that the parties understand that they are in compliance with a legal standard that is required when using the institute. Allied to this, the result can be sustained by the perception of other similar instruments in the Brazilian legal framework, the absence of the identification of the common objectives between the parts, as well as by the theory of contractual atypicity.

Ever since the great financial crisis of 2008 regulators have pushed toward more resilient banks, resulting in more demanding regulation and an increase of regulator’s insight and power. Through the revision of the BASEL framework, Contingent Convertible Bonds were introduced in 2010 as a part of regulatory capital and has since then grown increasingly popular. However, these instruments have never been tested in a stressed European financial system. Hence, there is no genuine information of how these instruments would behave. Neither have there been any published efforts in testing this through simulation, to the best of my knowledge. Using a temporally disaggregated augmentation of the EBA 2016 stress test, I simulate how the financial system would be affected by triggering the CoCos. Studying the implications of both low and high trigger instruments. Results indicate that there are low risks for a systemic fallout and showcases some notable differences as a result of CoCo design and type of trigger.

En vol de croisière, le convertible (ADAV) est soumis à une instabilité de type aéroélasticité dynamique, appelée flottement gyroscopique. Ce phénomène se caractérise par un mouvement de précession du rotor qui accélère la fatigue et augmente les charges sur la structure, et dont les conséquences peuvent être catastrophiques. Le but de cette étude est de mettre en place un modèle analytique permettant de reproduire avec précision le flottement gyroscopique. Pour cela, un outil de mise en équation a été développé afin de faire évoluer le modèle analytique suivant le choix du système à étudier. Les équations de Lagrange sont utilisées et développées à l'ordre 1. Les efforts aérodynamiques du rotor sont représentés par un modèle quasi statique plan d'ordre 1. Le système final étudié est constitué de l'ensemble isolé aile - mât - rotor du convertible. Le rotor 3 pales avec liaison K, est de type gimbal, et le pas des pales s'adapte automatiquement en fonction de la vitesse d'avancement de l'appareil. Grâce aux données expérimentales obtenues en soufflerie sur une maquette constituée d'une demi - aile, le modèle analytique a été validé pour différentes configurations de vitesse d'avancement et de raideurs de l'aile. Les vitesses critiques d'apparition du flottement gyroscopique sont retrouvées, et des simulations de balayages paramétriques permettent de proposer différentes configurations sur les caractéristiques du système pour repousser la limite de stabilité